Exxon Valdez Oil Spill - The Day That Reinsurers Cleaned Up

Originally published in the summer edition of BLG Insurance Law Quarterly

The decision of the Commercial Court in King and others v Brandywine Reinsurance Co (UK) Ltd, (formerly known as Cigna Re Co (UK) Ltd) was eagerly awaited by the reinsurance run-off market, as it dealt with the vexed question of whether underlying settlements made in relation to the 1989 Exxon Valdez oil spill could be claimed from reinsurers.

The issue had been unresolved for a long time, resulting in a log-jam in the settlement of a notorious LMX spiral claim. Originally, in the mid 1990's, one of Exxon's insurers, Commercial Union, had pursued some of its excess of loss carriers for summary judgement, claiming that they were bound to follow its settlements. The Court of Appeal disagreed however in Commercial Union v NRG Victory Reinsurance Ltd [1998], holding that the wording of the relevant loss settlements clauses did not permit this.

It therefore fell to Commercial Union to prove at trial its legal liability to Exxon. However, it entered into a (confidential) settlement with reinsurers, leaving the point completely open. King v Brandywine was therefore a test claim by Equitas as successors in interest to King Syndicate 745, which had in fact paid Exxon settlement claims to insurers and now sought recovery from their retrocessionaires (it is worth noting that Equitas is also successor in interest to a number of other syndicates whose position is aligned with that of retrocessionaires). It concerned the interpretation of only certain specific terms of coverage which were in dispute.

BACKGROUND

Exxon owned the oil and its affiliate owned the vessel by which it was being transported.

Exxon was obliged to initiate a hugely expensive exercise to clean up the pollution, both on land and at the shoreline. Exxon was under a strict liability to third parties including the State for any losses caused by the oil; Exxon paid those claims in 1991 and 1992.

UNDERLYING INSURANCE

The Exxon General Corporate Excess (''GCE'') Policy was the largest policy insuring Exxon, the relevant parts of which were: Section 1, which covered first party loss or damage to property, Section IIIA (''Marine Liabilities'' - in respect of which there was no dispute), and Section IIIB (''Public and Third Party liability'').

Exxon reached a settlement with its insurers in 1996 in respect of all claims under Section 1 and in 1997 in respect of all...